BOJ Rejects Earlier Asset Purchases in Shirakawa Finale: Economy

The Bank of Japan (8301) rejected a call
for an immediate start to open-ended asset purchases in Governor
Masaaki Shirakawa’s final meeting before a new leadership takes
over at the central bank.

The board voted eight-to-one against the proposal by member
Sayuri Shirai, the BOJ said in a statement in Tokyo today after
a two-day meeting. Policy makers left an asset-purchase fund
unchanged at 76 trillion yen ($810 billion) as forecast by all
23 analysts in a Bloomberg News survey.

Shirai’s call indicates she may already be looking ahead to
the more aggressive monetary easing proposed by Haruhiko Kuroda,
Prime Minister Shinzo Abe’s pick to be the next central bank
governor. Her backing may help Kuroda to secure majority support
for his measures after he said this week that the central bank
could buy longer-maturity bonds and bring forward the open-ended
purchases, due to start next year.

“Shirai’s proposals show that the BOJ is already moving to
Kuroda’s governorship,” said Masamichi Adachi, senior economist
at JPMorgan Chase & Co. in Tokyo and a former central bank
official. Having her support before he joins “makes it more
likely that the BOJ will add much more stimulus,” said Adachi,
who sees action as soon as an April 3-4 meeting.

The yen strengthened after the BOJ decision on the absence
of extra easing. The currency traded 0.1 percent higher at 94.00
per dollar as of 5:26 p.m. in Tokyo. The yen has fallen about 12
percent in three months as Abe pledges to end deflation and
revive the world’s third-biggest economy.

‘One Ally’

Shirai’s stance shows that Kuroda and Kikuo Iwata, a
nominee for deputy governor, will have “at least one ally on
the nine-member policy board,” said Izumi Devalier, a Japan
economist at HSBC Holdings Plc in Hong Kong. “However, the
remaining policy board members may not be inclined to abandon
the current monetary policy framework so hastily.”

At a press conference after the decision, Shirakawa said
that Shirai wanted to communicate the central bank’s stance on
achieving a 2 percent inflation target more clearly.

She “wants to maintain recent positive developments in the
economy,” he said, adding that more details will be in the
minutes of today’s meeting, to be released April 9.

Central banks in Europe, the U.K. and Malaysia are due to
set monetary policy today after Indonesia left its benchmark
unchanged. The European Central Bank may keep its benchmark
interest rate at a record low. Bank of England policy makers
will consider restarting asset purchases.

The BOJ decision came as Federal Reserve Bank of Dallas
President Richard Fisher added to a drumbeat of concern about
side-effects from Abe’s campaign.

BOJ ‘Politicized’

“He’s aggressive. He has basically politicized the central
bank, which worries me personally,” Fisher said in a speech in
San Antonio. “But he wants to see this deflationary” tendency
“exorcized” and “he’s working very, very hard to change
things, and indeed the stock market has responded.”

The Nikkei 225 Stock Average (NKY) broke 12,000 for the first
time since September 2008 today before closing at 11,968.08, a
gain of 0.3 percent for the day.

Japan’s economy has stopped weakening as overseas economies
show signs of picking up and exports appear to have stopped
falling, the BOJ said today. The government wants to end
deflation to revive the world’s third-biggest economy.

Shirai proposed accelerating the open-ended purchases and
combining them with money-market operations. Currently, the BOJ
buys government debt through two channels: its asset-purchase
program set up in October 2010 and outright purchase operations,
known as rinban.

Shirakawa’s Exit

Shirakawa and his two deputy governors exit March 19 after
failing to end 15 years of deflation. Today, the board also
voted down Ryuzo Miyao’s latest call for a pledge to keep
interest rates at virtually zero until a 2 percent inflation
goal is in sight.

“There is a possibility that the BOJ under Kuroda’s
leadership will hold an emergency board meeting instead of
waiting for the next scheduled meeting, to accelerate the
process of monetary easing discussions,” said Takahiro Sekido,
Japan strategist in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd.

Adachi said Kuroda will need to act boldly at next meeting
and “if he disappoints, that may trigger shocks in the
market.”

Some analysts and investors are skeptical about what the
central bank will achieve.

“Kuroda will hit the wall of reality,” Atsushi Mizuno,
vice chairman at Credit Suisse AG in Tokyo and a member of the
BOJ board from 2004 to 2009, said in an interview yesterday.
Options for aggressive easing are limited because excessive
government-bond purchases could lead to a market bubble, Mizuno
said.